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Productivity and Trade Dynamics in Sudden Stops

Author

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  • Felipe Benguria

    (Assistant Professor, Department of Economics, University of Kentucky (E-mail: fbe225@uky.edu))

  • Hidehiko Matsumoto

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Assistant Professor, National Graduate Institute for Policy Studies, E-mail: hmatsu.hm@gmail.com))

  • Felipe Saffie

    (Assistant Professor, Darden School of Business, University of Virginia (E-mail: SaffieF@darden.virginia.edu))

Abstract

This paper proposes a framework to jointly study productivity and trade dynamics during financial crises. The persistent output loss caused by crises is driven by lower productivity growth, which is determined by changes in product entry and exit margins in domestic and export markets. We calibrate and validate the model using unique data on firms' product portfolios, finding it closely matches the behavior of various margins during Chile's 1998 sudden stop. We decompose the sources of the welfare cost of sudden stops, finding a third of the welfare cost is due to a decline in productivity growth. Lower productivity growth, in turn, is due mostly to slower firm and product entry into the domestic market, while a decrease in production costs induces surviving firms to tilt their product portfolios towards export markets, boosting the productivity recovery in the aftermath of the crisis.

Suggested Citation

  • Felipe Benguria & Hidehiko Matsumoto & Felipe Saffie, 2020. "Productivity and Trade Dynamics in Sudden Stops," IMES Discussion Paper Series 20-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:20-e-13
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    Cited by:

    1. Albonico, Alice & Tirelli, Patrizio, 2020. "Financial crises and sudden stops: Was the European monetary union crisis different?," Economic Modelling, Elsevier, vol. 93(C), pages 13-26.
    2. Mr. Alexander Culiuc, 2020. "Real Exchange Rate Overshooting in Large Depreciations: Determinants and Consequences," IMF Working Papers 2020/060, International Monetary Fund.
    3. Nils M. Gornemann & Pablo Guerrón-Quintana & Felipe Saffie, 2020. "Exchange Rates and Endogenous Productivity," International Finance Discussion Papers 1301, Board of Governors of the Federal Reserve System (U.S.).
    4. Bira Zhahadai, 2023. "Are business cycles in emerging market economies alike?," International Economics and Economic Policy, Springer, vol. 20(4), pages 537-561, October.
    5. Florencia S. Airaudo & Hernán D. Seoane, 2021. "The Trend-cycle Connection," Working Papers 97, Red Nacional de Investigadores en Economía (RedNIE).

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    More about this item

    Keywords

    Endogenous growth; Firm dynamics; Trade dynamics; Sudden Stops;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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